The primary purpose of this blog (Prithviraj Kothari - MD, RSBL | Bullion market blog) is to educate the masses of the current happenings in the Bullion world.
This blog contains my opinion, which is not to be construed as investment advices.
Information provided in these blogs is intended solely for informative purposes and is obtained from sources believed to be reliable

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Monday, 1 August 2016

Gold and Silver prices on RISE: RSBL

- Mr. Prithviraj Kothari, MD RSBL

Precious
metals price rise is eminent and it ended the week on a positive note post poor
US data released. The negative data sent the dollar tumbling, stimulating a good
recovery for the yellow metal and its white counterparts.

Data released from the US was as
follows:

GDP data out of the U.S. disappointed on Friday, growing at a
seasonally and inflation adjusted +1.2% during Q2 (exp: +2.5%) as business
inventories contracted for the first time since Q3 2011

The University of Michigan’s consumer sentiment index dropped
to 90.0 in July (exp: 90.2) from 93.5 in June as both current and future
conditions declined.

The poor data countered the Fed’s statement that the US
economy is stable and the near-term outlook is positive. Even though the
unemployment rate is around five percent, the policy-board has been ineffective
at spurring inflation or consistent wage growth. All eyes were on this meeting
as something crucial was expected to happen regarding the interest rate hike.
But negative data has postponed this hike and this gave gold the push.

Apart
from the US there was news that came in from other economies which affected the gold price:

U.S Dollar:

Major
downturn in the dollar created by the release of second quarter US GDP where it
plummeted to 95.38 around the lowest mark since mid-June, before staging a
modest uptick to 95.60.

Japan:

Host
of new data releases and a Bank of Japan decision to inject further stimulus,
markets were directionless this week with volatility and volumes continuing to
drift lower. The Bank of Japan (BoJ) decided to adopt a minor adjustment to the
existing monetary policy by increasing its purchases of exchange-traded stock
funds to 6 trillion yen and expanded its dollar lending programme to $24
billion but kept its policy rate unchanged at -0.1 percent while maintaining
the pace of government bond purchases.

The
BOJ certainly doubled purchases of exchange-traded funds (ETFs) and said it
will “conduct a thorough assessment of the effects of negative interest rates
and its massive asset-buying program in September.”

The
bank was considering a $265 billion package, part of which would target
low-income citizens in another attempt to boost inflation and weak wage growth.

This
can be understood as- either the central bank may feel that Japan’s economic
growth needs very, very extensive stimulation and they have yet to formulate an
appropriate plan or it can be interested that they want to see how the chips
fall in eight weeks and move cautiously from there.

India:

Coming
to the domestic markets- India being one of the largest consumers of gold, but
currently the demand for gold isn’t intense. Frankly speaking, very few people
want to invest in gold at this price. Buyers, it seems, feel that the current
price is not sustainable and hence, they wait for a correction. Gold price in
India is governed by two major factors: global economic conditions and the
movement of rupee against the dollar. Both factors have contributed to the
current price rise. While global economic conditions continue to pose a greater
risk by the day following fluctuating recovery trend in the United States,
Britain’s exit from the European Union (BREXIT) and other geopolitical
tensions. On the other hand, Indian rupee has depreciated against the greenback
despite reports of good inflow of dollars.

Since
BREXIT, spot gold price jumped rapidly but, stayed elevated. Also, rainy season
is considered as a lean period for gold purchase due to the lack of festivals,
weddings or any other occasions during this season. Also, consumers have faced
two subsequent years of deficient monsoon rainfalls. Although, the current year
has seen normal rainfalls yet its distribution continues to remain uneven.
Also, the crucial rainfall month – August – is yet to come. So, let’s keep our
fingers crossed for the Kharif sowing and harvesting this year. In case of
normal monsoon and its even distribution, Kharif crop would bring some cheers
for farmers with higher output which would translate proportionate increase in
gold demand.

In
India, therefore, standard gold is available at Rs. 31,300 per 10 grams approx.
Gold price may touch $1400 in near future in the international markets which
will translate in rupee term at Rs. 32,500 per 10 grams. While the uptrend
continues there could be some profit booking.